Corporate Governance in Europe: Has the Crisis Affected Corporate Governance Policies?

The research on Corporate Governance (CG) has evolved over the last three decades. However, board composition and its effectiveness, as well as compensation policy, remain at the centre of policy debates and CG research. Until the financial crisis national governance systems in Europe were dominated by informal institutions, in which voluntary compliance with codes of conduct prevailed with reference to governance activities, and the legislative framework did not specify rules governing corporate governance mechanisms. However, corporate scandals during the crisis period raised serious doubts about the effectiveness of the CG policies developed by companies. Focusing on Spain, different voluntary-compliance good governance codes have emerged since 1998: the Olivencia Code (1998), Aldama Code (2003), Conthe or Unified Code (2006), the updated Unified Code (2013), and the Good Governance Code passed by the CNMV [(Comisión Nacional del Mercado de Valores) is the Spanish Securities Exchange Commission.] board in 2015. However, examples like the 4.4% increase in director compensation in 2012, while IBEX 35 (The Ibex 35 is a Spanish stock index comprised of the exchange’s largest 35 companies in terms of market capitalization.) companies lost 30% of their value from 2007 through 2011, illustrate the need to legislate over some governance matters. There still remains much to do. This paper takes into account the differences in CG across Europe, considering 33 variables that measure policies related to corporate governance, including the areas of board structure and functioning, committees, compensation policy, anti-takeover-devices, shareholder rights and Corporate Social Responsibility. The analysis focuses on Spain but also considers Europe’s three main economies, using a sample of 206 enterprises that belong to the main Stock Indexes of Spain (IBEX 35), France (DAX), Germany (CAC-40) and the United Kingdom (FTSE-100). The results show country-based CG differences in 25 variables, and pre- and post-crisis differences in 11 variables for Spain, 10 for Germany, 17 for the United Kingdom, and 18 for France. Thus, the crisis affected corporate governance in both common law countries and in civil law ones. A better understanding in each country of how businesses are developing and implementing CG, and whether CG policies are different between countries, is needed in order to make CG-related proposals in the future.