# CE2011161EN.01001601.xml

| 31.5.2011 | EN | Official Journal of the European Union | CE 161/16 |
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31.5.2011

EN

Official Journal of the European Union

CE 161/16

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Tuesday 18 May 2010Deontological questions related to companies’ managment

P7_TA(2010)0165

European Parliament resolution of 18 May 2010 on deontological questions related to companies’ management (2009/2177(INI))

2011/C 161 E/03

The European Parliament,

The European Parliament,

having regard to the Commission recommendation of 30 April 2009 complementing Recommendations 2004/913/EC and 2005/162/EC as regards the regime for the remuneration of directors of listed companies (1),

1

having regard to the Commission recommendation of 30 April 2009 on remuneration policies in the financial services sector (2),

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having regard to the communication from the Commission accompanying the two above mentioned recommendations, which was also published on 30 April 2009 (COM(2009)0211),

having regard to the proposal for a directive of the European Parliament and of the Council amending Directives 2006/48/EC and 2006/49/EC as regards capital requirements for the trading book and for re-securitisations, and the supervisory review of remuneration policies (COM(2009)0362),

having regard to Directive 2007/36/EC of the European Parliament and of the Council of 11 July 2007 on the exercise of certain rights of shareholders in listed companies (3),

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having regard to Directive 2006/43/EC of the European Parliament and of the Council of 17 May 2006 on statutory audits of annual accounts and consolidated accounts, amending Council Directives 78/660/EEC and 83/349/EEC and repealing Council Directive 84/253/EEC (4),

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having regard to Rule 48 of its Rules of Procedure,

having regard to the report of the Committee on Legal Affairs and the opinion of the Committee on Employment and Social Affairs (A7-0135/2010),

| A. | whereas the European Union and the rest of the world are experiencing the severest economic crisis of the last 60 years, the real economy is experiencing its worst recession of that period, and difficult employment conditions are anticipated despite a relative upturn in the economy, |
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A.

whereas the European Union and the rest of the world are experiencing the severest economic crisis of the last 60 years, the real economy is experiencing its worst recession of that period, and difficult employment conditions are anticipated despite a relative upturn in the economy,

| B. | whereas, irrespective of the type of company or the sector in which it operates, a number of questions related to companies’ management are important in the general context of the deontology of business conduct, such as the duty of care, transparency, corporate social responsibility, risk management, the economic sustainability of financial investment decisions, board of directors or supervisory board practices or the exercise of shareholders’ rights; whereas the recent financial crisis showed that those questions need to be considered in the light of preserving financial stability and continuously analysed in order to help find solutions allowing companies to face current challenges and to help promote economic growth and higher employment within the EU, |
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B.

whereas, irrespective of the type of company or the sector in which it operates, a number of questions related to companies’ management are important in the general context of the deontology of business conduct, such as the duty of care, transparency, corporate social responsibility, risk management, the economic sustainability of financial investment decisions, board of directors or supervisory board practices or the exercise of shareholders’ rights; whereas the recent financial crisis showed that those questions need to be considered in the light of preserving financial stability and continuously analysed in order to help find solutions allowing companies to face current challenges and to help promote economic growth and higher employment within the EU,

| C. | whereas the crisis also showed close links between risk management and remuneration policy and the importance of the latter in the mechanisms governing the proper functioning of companies; for this reason risk management should be duly taken into account when devising remuneration policy so as to enable effective risk management systems to be built into a broader, balanced approach to governance, and to ensure that if incentive systems are set up, care is taken to provide appropriate risk management systems as a counterbalance, |
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C.

whereas the crisis also showed close links between risk management and remuneration policy and the importance of the latter in the mechanisms governing the proper functioning of companies; for this reason risk management should be duly taken into account when devising remuneration policy so as to enable effective risk management systems to be built into a broader, balanced approach to governance, and to ensure that if incentive systems are set up, care is taken to provide appropriate risk management systems as a counterbalance,

| D. | whereas companies in all sectors share a number of classes of risk, although some types of risk are sector-specific (such as risks facing companies active in the financial sector); whereas failure of effective risk management resulting from inadequate monitoring of compliance with supervision rules and misaligned incentives in remuneration policies played a central role in the recent financial crisis, |
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D.

whereas companies in all sectors share a number of classes of risk, although some types of risk are sector-specific (such as risks facing companies active in the financial sector); whereas failure of effective risk management resulting from inadequate monitoring of compliance with supervision rules and misaligned incentives in remuneration policies played a central role in the recent financial crisis,

| E. | whereas risk management should be understood and applied at the level of the whole organisation and not only of its individual operational units; it should also be disclosed, transparent and subject to reporting requirements, |
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E.

whereas risk management should be understood and applied at the level of the whole organisation and not only of its individual operational units; it should also be disclosed, transparent and subject to reporting requirements,

| F. | whereas any solution should ensure that, when the risk is taken, it accords with the purpose of the business and the strategy of the company with due regard to effective risk management; effective risk management should be regarded as one of the most important elements of good corporate governance in all companies, |
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F.

whereas any solution should ensure that, when the risk is taken, it accords with the purpose of the business and the strategy of the company with due regard to effective risk management; effective risk management should be regarded as one of the most important elements of good corporate governance in all companies,

| G. | whereas one of the first steps taken by the Commission after the crisis addressed the issue of remuneration policy by complementing Commission Recommendations 2004/913/EC and 2005/162/EC, which aimed to ensure appropriate remuneration policy by setting out best practices for its design with a new recommendation as regards the regime for remuneration of directors of listed companies and by publishing a recommendation on remuneration policies in the financial services sector, |
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G.

whereas one of the first steps taken by the Commission after the crisis addressed the issue of remuneration policy by complementing Commission Recommendations 2004/913/EC and 2005/162/EC, which aimed to ensure appropriate remuneration policy by setting out best practices for its design with a new recommendation as regards the regime for remuneration of directors of listed companies and by publishing a recommendation on remuneration policies in the financial services sector,

| H. | whereas the degree of recommendation varies, depending on the type of company, with due regard to size, internal organisation and complexity of activities; whereas such distinctions can be made between financial (listed or not) and listed but non-financial companies, and between different sectors of the financial industry such as banking, insurance and fund management, |
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H.

whereas the degree of recommendation varies, depending on the type of company, with due regard to size, internal organisation and complexity of activities; whereas such distinctions can be made between financial (listed or not) and listed but non-financial companies, and between different sectors of the financial industry such as banking, insurance and fund management,

| I. | whereas in the context of remuneration several points need to be considered, such as (i) remuneration schemes, including their structure, transparency and symmetry and the link between remuneration and incentive, (ii) the process of determining the remuneration schemes, including the definition of actors, roles and responsibilities, (iii) control over remuneration schemes, with particular attention given to shareholders, and (iv) total remuneration including salaries and pensions, |
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I.

whereas in the context of remuneration several points need to be considered, such as (i) remuneration schemes, including their structure, transparency and symmetry and the link between remuneration and incentive, (ii) the process of determining the remuneration schemes, including the definition of actors, roles and responsibilities, (iii) control over remuneration schemes, with particular attention given to shareholders, and (iv) total remuneration including salaries and pensions,

| J. | whereas some aspects of principles of paramount importance contained in the recommendations remain unclear and must be put properly into practice, such as the concept of performance criteria, which should help in creating the link between pay and performance, the notion of ‘inadequate performance’ in the case of termination payments, the termination payment and variable components of remuneration in the financial services sector, |
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J.

whereas some aspects of principles of paramount importance contained in the recommendations remain unclear and must be put properly into practice, such as the concept of performance criteria, which should help in creating the link between pay and performance, the notion of ‘inadequate performance’ in the case of termination payments, the termination payment and variable components of remuneration in the financial services sector,

| K. | whereas, given the recurring difficulties in defining the link between pay and performance, the focus should be on the effectiveness of the process in which remuneration policy is determined and on transparency, both of which should be based on sound governance defined and assessed by reference to an appropriate time-frame, oriented towards the medium to long term so as to avert dangerous, unsustainable risk management policies geared to the short term (if not the very short term), with defined, separated roles and the responsibilities of those involved, |
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K.

whereas, given the recurring difficulties in defining the link between pay and performance, the focus should be on the effectiveness of the process in which remuneration policy is determined and on transparency, both of which should be based on sound governance defined and assessed by reference to an appropriate time-frame, oriented towards the medium to long term so as to avert dangerous, unsustainable risk management policies geared to the short term (if not the very short term), with defined, separated roles and the responsibilities of those involved,

| L. | whereas any adopted solutions should not follow the one-size-fits-all principle and companies should retain flexibility in adjusting systems to their own needs, |
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L.

whereas any adopted solutions should not follow the one-size-fits-all principle and companies should retain flexibility in adjusting systems to their own needs,

| M. | whereas ex-post assessment of the performance and remuneration policy is needed, |
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M.

whereas ex-post assessment of the performance and remuneration policy is needed,

| N. | whereas transparency proved to be an important element of good governance; whereas it should not be reduced to mere disclosure, but it should mean that companies are able to explain the choice of a particular remuneration policy, |
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N.

whereas transparency proved to be an important element of good governance; whereas it should not be reduced to mere disclosure, but it should mean that companies are able to explain the choice of a particular remuneration policy,

| O. | whereas disclosure of the policy on directors’ remuneration in a clear and easily understandable way should in principle benefit the process of taking decisions on remuneration policy, in particular by shareholders; such disclosure could include detailed disclosure in the annual accounts or in the remuneration report of the total remuneration and other benefits granted to individual directors, |
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O.

whereas disclosure of the policy on directors’ remuneration in a clear and easily understandable way should in principle benefit the process of taking decisions on remuneration policy, in particular by shareholders; such disclosure could include detailed disclosure in the annual accounts or in the remuneration report of the total remuneration and other benefits granted to individual directors,

| P. | whereas the company’s objective should be constructive engagement of shareholders and employees; whereas this requires exploration of other measures for effective involvement of shareholders in shaping the company’s policy on remuneration (such as the possibility introduced in Germany for companies to seek shareholders’ approval of a tier remuneration policy through an advisory vote), in particular since shareholders are not always willing or prepared to take on a more active role; whereas this should also mean that ways should be explored of ensuring more proactive rather than reactive behaviour by shareholders vis-à-vis boards, |
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P.

whereas the company’s objective should be constructive engagement of shareholders and employees; whereas this requires exploration of other measures for effective involvement of shareholders in shaping the company’s policy on remuneration (such as the possibility introduced in Germany for companies to seek shareholders’ approval of a tier remuneration policy through an advisory vote), in particular since shareholders are not always willing or prepared to take on a more active role; whereas this should also mean that ways should be explored of ensuring more proactive rather than reactive behaviour by shareholders vis-à-vis boards,

| Q. | whereas, especially in the listed companies, non-participation by shareholders is substantial, and electronic voting should therefore be encouraged in shareholders’ meetings, |
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Q.

whereas, especially in the listed companies, non-participation by shareholders is substantial, and electronic voting should therefore be encouraged in shareholders’ meetings,

| R. | whereas existing legislation on information and consultation of workers as regards management of their firms must be correctly implemented so as to make possible a genuine dialogue with management and a clear definition of the firms’ remuneration practices and objectives, |
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R.

whereas existing legislation on information and consultation of workers as regards management of their firms must be correctly implemented so as to make possible a genuine dialogue with management and a clear definition of the firms’ remuneration practices and objectives,

| S. | whereas it falls within the legal remit of company boards to establish criteria for management remuneration and fix the levels of such remuneration, |
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S.

whereas it falls within the legal remit of company boards to establish criteria for management remuneration and fix the levels of such remuneration,

| T. | whereas voluntary standards are essential in improving boards’ performance and a review of good practices may be necessary, |
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T.

whereas voluntary standards are essential in improving boards’ performance and a review of good practices may be necessary,

| U. | whereas the aim should be to create competent boards of directors and supervisory boards capable of objective and independent judgment; whereas boards’ effectiveness and efficiency should be evaluated, |
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U.

whereas the aim should be to create competent boards of directors and supervisory boards capable of objective and independent judgment; whereas boards’ effectiveness and efficiency should be evaluated,

| V. | whereas, owing to the acknowledged weaknesses of the current system of corporate governance, a percentage ( for ex. 1/3) of the directors ( members of the board) should be professionals, remunerated, responsible and subordinated only to the shareholders; whereas their responsibility and subordination should be filtered through professional expertise, |
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V.

whereas, owing to the acknowledged weaknesses of the current system of corporate governance, a percentage ( for ex. 1/3) of the directors ( members of the board) should be professionals, remunerated, responsible and subordinated only to the shareholders; whereas their responsibility and subordination should be filtered through professional expertise,

| W. | whereas, while legislating in this area might be a more difficult and time-consuming option than adoption of recommendations, the soft law approach is not satisfactory, |
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W.

whereas, while legislating in this area might be a more difficult and time-consuming option than adoption of recommendations, the soft law approach is not satisfactory,

| X. | whereas the Commission plans to follow up the recommendations with legislative proposals to bring remuneration schemes within the scope of prudential oversight, and has proposed notably to revise the Capital Requirements Directive; whereas the Commission intends to examine additional measures in relation to non-banking financial services, |
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X.

whereas the Commission plans to follow up the recommendations with legislative proposals to bring remuneration schemes within the scope of prudential oversight, and has proposed notably to revise the Capital Requirements Directive; whereas the Commission intends to examine additional measures in relation to non-banking financial services,

| Y. | whereas recommendations issued by the Commission in respect of listed companies do not necessarily represent appropriate general guidelines for developing best practices in non-listed companies, |
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Y.

whereas recommendations issued by the Commission in respect of listed companies do not necessarily represent appropriate general guidelines for developing best practices in non-listed companies,

| Z. | whereas uniform and coherent implementation of any instrument adopted in this area throughout the EU and by all relevant parties is essential, |
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Z.

whereas uniform and coherent implementation of any instrument adopted in this area throughout the EU and by all relevant parties is essential,

| 1. | Welcomes steps aiming at addressing the deontological aspects of companies’ management, which the recent financial crisis reveals are far from resolved; welcomes in this context the two recommendations issued by the Commission; |
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1.

Welcomes steps aiming at addressing the deontological aspects of companies’ management, which the recent financial crisis reveals are far from resolved; welcomes in this context the two recommendations issued by the Commission;

| 2. | Points out that the soft law approach is however not satisfactory; |
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2.

Points out that the soft law approach is however not satisfactory;

| 3. | Welcomes therefore the Commission’s first legislative proposal allowing the EU legislator to properly address the relevant issues, i.e. the amendment of the Capital Requirements Directive; |
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3.

Welcomes therefore the Commission’s first legislative proposal allowing the EU legislator to properly address the relevant issues, i.e. the amendment of the Capital Requirements Directive;

| 4. | Endorses the principles which the Commission put forward in its recommendations of 30 April 2009 concerning, firstly, remuneration regimes and governance arrangements with regard to the remuneration of the directors and managers of listed companies, and, secondly, on remuneration regimes and the process of drafting and implementing remuneration policy (governance), the transparency of remuneration policy and prudential supervision (surveillance) in the financial sector, but emphasises that these recommendations have not been put into practice satisfactorily by the Member States; |
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4.

Endorses the principles which the Commission put forward in its recommendations of 30 April 2009 concerning, firstly, remuneration regimes and governance arrangements with regard to the remuneration of the directors and managers of listed companies, and, secondly, on remuneration regimes and the process of drafting and implementing remuneration policy (governance), the transparency of remuneration policy and prudential supervision (surveillance) in the financial sector, but emphasises that these recommendations have not been put into practice satisfactorily by the Member States;

| 5. | Maintains that the EU needs an industrial, social, and environmental model geared to the long term, consistent with the general interest – of companies, shareholders, and workers – and with a new financial architecture based on a system of prudential and deontological rules and on national and European supervisory authorities with binding powers; also believes that the financial sector should meet the needs of the real economy, help to promote sustainable growth and display the greatest possible degree of social responsibility; |
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5.

Maintains that the EU needs an industrial, social, and environmental model geared to the long term, consistent with the general interest – of companies, shareholders, and workers – and with a new financial architecture based on a system of prudential and deontological rules and on national and European supervisory authorities with binding powers; also believes that the financial sector should meet the needs of the real economy, help to promote sustainable growth and display the greatest possible degree of social responsibility;

| 6. | Recalls that, during the process of economic renewal, in addition to supporting the real economy, measures for the protection of jobs, training and working conditions are of major importance and should be taken into account by all stakeholders; |
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6.

Recalls that, during the process of economic renewal, in addition to supporting the real economy, measures for the protection of jobs, training and working conditions are of major importance and should be taken into account by all stakeholders;

| 7. | Maintains that remuneration policies making for sound, sustainable governance are necessary not just for deontological reasons, but also for eminently economic reasons, given that policies of this kind have a direct impact in terms of assets and the development outlook for companies themselves as well as the economy in general, and of preserving and creating higher levels of employment; |
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7.

Maintains that remuneration policies making for sound, sustainable governance are necessary not just for deontological reasons, but also for eminently economic reasons, given that policies of this kind have a direct impact in terms of assets and the development outlook for companies themselves as well as the economy in general, and of preserving and creating higher levels of employment;

| 8. | Considers that provisions on remuneration policies for directors of banks and credit institutions have to be more than mere recommendations and must hence take the form of binding measures linked to a system of oversight, the object being to ensure that the variable component of remuneration – bonuses, stock options, and incentives – does not drive companies to adopt over-risky investment and management policies which pay no heed to the fallout for the real economy; |
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8.

Considers that provisions on remuneration policies for directors of banks and credit institutions have to be more than mere recommendations and must hence take the form of binding measures linked to a system of oversight, the object being to ensure that the variable component of remuneration – bonuses, stock options, and incentives – does not drive companies to adopt over-risky investment and management policies which pay no heed to the fallout for the real economy;

| 9. | Emphasises that corporate management and remuneration policies must comply with and foster the principles of wage parity and equal treatment of women and men established by the Treaties and by EU directives; |
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9.

Emphasises that corporate management and remuneration policies must comply with and foster the principles of wage parity and equal treatment of women and men established by the Treaties and by EU directives;

| 10. | Sees the need for further European legislative action in order to solve the problem of different national remuneration rules for companies in cases where managers move from one Member State to another within a (holding) company or from one company to another company in a different Member State, or when companies make use of freedom of movement within the internal market, for example, by way of cross-border mergers; |
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10.

Sees the need for further European legislative action in order to solve the problem of different national remuneration rules for companies in cases where managers move from one Member State to another within a (holding) company or from one company to another company in a different Member State, or when companies make use of freedom of movement within the internal market, for example, by way of cross-border mergers;

| 11. | Considers it important to emphasise the general social responsibility of company boards for the sustainable, longer-term development of firms based in an EU Member State, and to expect it as a duty of such boards that they structure company directors’ remuneration in a way which reflects that aim and which is transparent to the European public; |
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11.

Considers it important to emphasise the general social responsibility of company boards for the sustainable, longer-term development of firms based in an EU Member State, and to expect it as a duty of such boards that they structure company directors’ remuneration in a way which reflects that aim and which is transparent to the European public;

| 12. | Urges the Commission to propose sector-specific amendments to financial services legislation to ensure consistency between banking and non-banking institutions in remuneration policy. Furthermore, calls on the Commission to bring forward legislative proposals in the field of company law to help address corporate governance issues and ensure consistency in remuneration policy for all types of companies; |
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12.

Urges the Commission to propose sector-specific amendments to financial services legislation to ensure consistency between banking and non-banking institutions in remuneration policy. Furthermore, calls on the Commission to bring forward legislative proposals in the field of company law to help address corporate governance issues and ensure consistency in remuneration policy for all types of companies;

| 13. | Invites the Commission to encourage and support effective implementation of measures adopted at EU level, focusing primarily on cross-border companies, and to fulfil its undertaking to submit an evaluation report on the application of both recommendations by Member States; in this context calls on the Commission to include in the evaluation report’s conclusions a schedule of appropriate legislative and non-legislative activities which might be a necessary follow-up; |
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13.

Invites the Commission to encourage and support effective implementation of measures adopted at EU level, focusing primarily on cross-border companies, and to fulfil its undertaking to submit an evaluation report on the application of both recommendations by Member States; in this context calls on the Commission to include in the evaluation report’s conclusions a schedule of appropriate legislative and non-legislative activities which might be a necessary follow-up;

| 14. | Calls for efficient implementation of the rules on consultation and employee participation systems opted for in the context of Directive 2001/86/EC (5) supplementing the Statute for a European Company; |
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14.

Calls for efficient implementation of the rules on consultation and employee participation systems opted for in the context of Directive 2001/86/EC (5) supplementing the Statute for a European Company;

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| 15. | Sees the European company as a suitable platform for best practices with a view to embedding ethical principles in the way that transnational companies are directed and putting such principles into practical application; |
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15.

Sees the European company as a suitable platform for best practices with a view to embedding ethical principles in the way that transnational companies are directed and putting such principles into practical application;

| 16. | Calls on Member States to effectively implement measures such as the EU Shareholders’ Rights Directive to remove the obstacles to and enhance shareholders’ participation in voting, in particular with respect to cross-border voting; |
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16.

Calls on Member States to effectively implement measures such as the EU Shareholders’ Rights Directive to remove the obstacles to and enhance shareholders’ participation in voting, in particular with respect to cross-border voting;

| 17. | Calls on all stakeholders to actively engage in a review of business practices and changes in business culture; |
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17.

Calls on all stakeholders to actively engage in a review of business practices and changes in business culture;

| 18. | Calls for encouragement for more women to be assigned to management posts by means of a Commission recommendation to introduce a system for the filling of posts on company decision-making bodies, posts in other bodies and posts in general; |
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18.

Calls for encouragement for more women to be assigned to management posts by means of a Commission recommendation to introduce a system for the filling of posts on company decision-making bodies, posts in other bodies and posts in general;

| 19. | Proposes that the national supervisory authorities, in assessing the independence of members of the managing bodies of undertakings more strictly, should devise more effective anti-corruption schemes, the establishment of which may not only be conducive to more ethical business management practices but may also increase the economic success of undertakings; |
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19.

Proposes that the national supervisory authorities, in assessing the independence of members of the managing bodies of undertakings more strictly, should devise more effective anti-corruption schemes, the establishment of which may not only be conducive to more ethical business management practices but may also increase the economic success of undertakings;

| 20. | Supports the establishment of uniform and comprehensive guidance concerning risk management, which at present seems to be addressed by various codes and standards applicable in Member States only in a fragmentary way; |
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20.

Supports the establishment of uniform and comprehensive guidance concerning risk management, which at present seems to be addressed by various codes and standards applicable in Member States only in a fragmentary way;

| 21. | Stresses that, in the case of economic crimes, it is possible to bring criminal proceedings against the individual members of the board of directors responsible for these crimes; |
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21.

Stresses that, in the case of economic crimes, it is possible to bring criminal proceedings against the individual members of the board of directors responsible for these crimes;

| 22. | Invites the Commission to promote the utilisation of best practice guidance for unlisted companies, which is designed to take account of the specificities and differences of such companies; |
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22.

Invites the Commission to promote the utilisation of best practice guidance for unlisted companies, which is designed to take account of the specificities and differences of such companies;

| 23. | Instructs its President to forward this resolution to the Council and the Commission. |
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23.

Instructs its President to forward this resolution to the Council and the Commission.

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(1)  OJ L 120, 15.5.2009, p. 28.

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(2)  OJ L 120, 15.5.2009, p. 22.

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(3)  OJ L 184, 14.7.2007, p. 17.

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(4)  OJ L 157, 9.6.2006, p. 87.

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(5)  OJ L 294, 10.11.2001, p. 22.

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