European Financial Markets Convention: ECGI session on Executive Remuneration

The future of Executive Remuneration in Europe

At FESE’s 2002 European Financial Markets Convention in Brussels, the ECGI was given the opportunity to air and debate the issues surrounding the Takeover Directive and the legal framework for takeovers in Europe. FESE again this year invited the Institute to organise a session at its Convention which it held in London on the theme of ‘Europe’s Financial Markets within a global setting’.

The ECGI’s topic was Executive Remuneration, a topic of enormous importance and one which makes the headlines of newspapers very often these days. Introducing the ECGI session, Antonio Borges, ECGI Chairman reminded delegates that since top management played a very important role in the health of companies and therefore in the value that those companies created for their shareholders, attracting good managers is of the utmost importance. “To the extent that there is a market for top managers,” he said, “you have to keep up with that market and you have to pay the sort of compensation that attracts those top people.”

“Top managers are also good at destroying value, doing a poor job and hurting shareholders’ interests,” he continued, so it is equally important to be able to get rid of them and to be able to get rid of then whenever necessary. He observed that there was a general feeling, probably justified, that executive compensation had gone beyond what one would normally call sensible. “Are top managers today worth 30,40,50 times more than they were only 20 years ago?” he asked. “Is their role so much more important today that justifies such extraordinary inflation of executive packages?”

Some very distinguished researchers argue that there is no limit to executive compensation other than the so called ‘outrage factor’. As long as you can get by without too much outrage, go for it! This makes for an issue of enormous emotional content.

“We need to curb excesses. We need to restore shareholder sovereignty. We must make sure that managers do not take over governance and award themselves huge pay offs with shareholders’ money,” he continued, “but at the same time, we need to have motivated executives, confident in the knowledge that they are recognised and rewarded when they do a good job.”

Concluding his introductory remarks and introducing the remainder of the session, Mr Borges reminded the delegates that the ECGI does not take a position on these matters. Its primary role is to sponsor research, stimulate debate and disseminate best practice.

Speaking to the topic ‘Executive Remuneration – the Caucus Race’, Colin Melvin, Director of Corporate Governance at Hermes Investment Management told the audience that at Hermes, he was responsible for corporate governance on some £20billion of equities. For Hermes, corporate governance is about paying pensions and increasing the value of the investments it makes on behalf of its clients. Hermes uses active corporate governance techniques to achieve that.

“In the investment industry, here is a clear shift away from trading to long-termism,” he said “and we at Hermes are very pleased to be part of that. We see our job as very much supporting management in taking decisions which are in the long-term interests of the shareholders and the companies they manage. All this informs our approach to remuneration.”

Colin Melvin described a Caucus Race as a race with ill-defined goals in which everybody wins – “a very good description of the current state of executive remuneration!”

For institutional investors, remuneration is the quintessential corporate governance issue, he opined. Corporate governance is about ownership and control - shareholders’ ownership of companies and the extent to which companies are controlled by the directors. Corporate governance addresses the gap between these interests, and properly structured, it can align the interests of managers and directors with those of shareholders. “It seems to us that in the majority of cases it fails to do so at the moment.” he added.

He set out some of the problems associated with executive remuneration problems. Large payments to directors who fail are clearly not in shareholders’ interests. Pay and remuneration are difficult enough but made more so by consultants to companies who produce complicated reports designed, he felt, to pull the wool over the eyes of shareholders.

Often schemes have performance targets which bear no relation to the prospects of the companies concerned. This is not only inappropriate but also a missed opportunity. These schemes are intended to motivate executives.

Excess is a problem; the quantum of remuneration has not been addressed. A lot of time is spent talking about performance but less about the amounts paid to directors. “Is it alright for Mr Aldinger of HSBC to get $50million in his first three years and not do anything to actually earn that beyond being there. He could be sacked tomorrow and still get the money. Shareholders are not taking a view on that at the moment and we think they should.”

If these are the problems, what is being done about them? In July 2002, the ICGN adopted the statement on executive remuneration incorporating best global practice guidance. It called on Remuneration Committees to do three things:

ensure that levels and structures of remuneration are appropriate and reasonable;
stop authorising certain types of payment and incentives; and
provide full and clear disclosure of remuneration philosophies and payments.

It also called on institutional investors to so something – namely to devote more resources to understanding remuneration issues and analysing remuneration proposals. This addresses a big problem in the investment industry. Whilst there are one or two institutions such as Hermes that are prepared to put serious resources into this area (Hermes has a team of 8 people dedicated to corporate governance and a further 34 people working in specialised focus funds, making its governance stewardship and engagement resource in total over 40), others with more assets have one or two people looking at this problem. There is no way they can do this properly and yet this is in an environment where governments, the investing public and the pension funds all expect governance and the stewardship of their investments to be taken seriously.

“This situation cannot continue,” he said. “This was recommended in the ICGN paper and there is a call upon institutions that are members of the ICGN to devote more resources to this. It will be interesting this year to see if they have done that. I suspect many have not.”

Colin Melvin commented on the factors which the ICGN recommended as best practice. These included:

that Remuneration Committees should be composed of truly independent directors;
Remuneration Committees should be responsible for the appointment of consultants. Far too often, remuneration consultants are appointed by executives rather than non-executives. Clearly the consultants see themselves beholden to those that appointed them to provide the maximum value for the minimum effort which we think happens quite a lot and that is not a very happy situation;
all aspects of remuneration of key executives and directors should be disclosed to investors;
substantial direct stock ownership is the best way to align management and investor interests;
remuneration should be linked to appropriate short and long-term performance measures;
short and long term incentive arrangements should not be disproportionate to performance. This is crucial. There cannot be payments for failure and for just following the market upwards;
options should not be the sole long-term incentive. The gearing effect within share options is inappropriate as an incentivising measure. If one wants management to act as shareholders, they should be made shareholders. They should be given stock not options;
the investing term should be at least 3 years and options should be granted at regular intervals which would go some way to mitigating the effect of the gearing;
employment contracts should not be used as retention devices and should be no longer that 12 months;
companies should not loan money to executives or pay bonuses purely on the completion of mergers and acquisitions. Transaction bonuses have been a big issue in the UK since Vodafone in particular tried to award £10million to Chris Gent for completing the takeover of Mannesmann. Hermes argued at that time that awarding a bonus for completing the transaction was inappropriate. Clearly, it is the consequences of the transaction that are demonstration of the value added and so there has to be some link to what happens afterwards;
institutional investors should increase the resources devoted to corporate governance.

Colin Melvin felt these were very sensible points which reflected UK best practice as it currently stands. He thought it was reasonable to expect that other markets should attempt to emulate them. They didn’t, however, address quantum.

There is very little appetite at the moment for addressing this thorny problem of how much should be paid to directors. At Hermes, the view is that the best way to do this is somehow to allocate a portion of the excess return generated by executives to them. “In order to move away from the ratcheting up of awards, a certain amount of value generated, with an appropriate cap, should be allocated to executives. This seems to take us in the right direction and we will be taking these ideas forward,” he concluded.

Professor Guido Ferrarini, Professor of Law at the University of Genoa gave a presentation on the provisional paper ‘Executive Remuneration in the EU: Comparative Law and Practice’ which he is writing with Niamh Moloney of Queen’s University, Belfast and Cristina Vespro of Université Libre de Bruxelles.

“In this paper,” he said “we try to highlight first of all the theory of corporate governance as applied to executive remuneration. Then we examine the rules applicable in Europe for executive remuneration. We also did some statistical research, looking at remuneration reports and similar documents of FTSE Europtop 300 companies”

Annual disclosure is really the main issue about executive remuneration. Are shareholders and the public in general informed enough about executive remuneration? If we look at the UK, as you well know there is a special report on Directors’ remuneration. The amounts which are given as to executive remuneration are individualised and the details distinguish between fixed, variable and share-based remuneration.

Of course we don’t know the value of share-based remuneration because the new accounting standards are not yet in place. If we look at Ireland, the situation is similar except that there is a ‘comply or explain’ system. In France, there is a voluntary recommended annual report and then by law there is a special report on stock options. Information is individualised and it is possible to distinguish the various components of remuneration. The same, more or less, holds for Italy. We have a remuneration report within the corporate governance report and this is by virtue of the Italian Exchange rules and then under CONSOB regulations, the individual amounts of remuneration are shown in the notes to the accounts. Similarly for the Netherlands except there isn’t any remuneration report there and the situation in Sweden is not very different. There is a second group of countries where the situation is very different.

In Austria, there isn’t any remuneration report. The amounts that are disclosed under the ‘comply or explain’ rule are only the aggregate amounts. The individual amounts would be recommended however. It is also possible under the corporate governance code to distinguish between the different components of remuneration. In Belgium, the situation is rather poor. Only aggregate amounts are disclosed.

The same is true, more of less for Denmark and Finland. In Germany, by law only aggregate amounts of executive remuneration are disclosed. Under the Cromme code, also the individual amounts should be disclosed bit if we look at German corporates, especially those in the FTSE Europtop 300, all of them only give aggregate data except for one company (five in 2002) which gives individual amounts. In Greece and Luxembourg, only total amounts are given. The same is true for Portugal and Spain. In Spain if we look at the corporate governance codes, they recommend individual disclosure of remuneration but in fact the recent Aldama Report admits that companies do not comply with this recommendation.

Looking at annual disclosure of stock options, in the countries in this first group, we have individualised information and we have information about rights granted, rights exercised and rights unexercised. In all countries it is required by public regulation. In Ireland however it is ‘comply or explain’.

Looking at the second group, you can tell from the colours that the situation is quite different. Aggregate info is only given. In two countries, Austria and Germany, details are given as to grants and exercise of stock options. In Germany this is provided by the Cromme code. Actually this recommends individual disclosure but in fact all the companies follow a different approach and only give aggregate data also with respect to stock options.

Ad hoc disclosure is disclosure that occurs from time to time regarding the purchase and sale of shares by insiders. It also concerns the granting, vesting and exercise of stock options. This is a complex area of regulation. In the UK there are quite stringent rules as to timely disclosure of insider dealing. Insiders have to disclose in timely fashion to the company, to the regulators and to the market. These rules are also applicable to the granting, vesting and exercise of stock options.

The same points apply more or less for Ireland. In France there is public regulation but it is more limited - timely disclosure as to the company but only half-yearly to the market and the regulator. There is no disclosure with respect to granting, vesting and exercise of stock options. In Italy disclosure occurs under the rules of the Italian exchange. It is in principle a quarterly disclosure to the company and the market. In addition, stock option disclosure is recommended by CONSOB. In the Netherlands, the situation is almost similar to the UK. In Sweden, there is timely disclosure to the regulator and the market.

Looking at the other group of companies, the situation is a little bit better than for annual disclosure. Countries like Austria and German have a system of disclosure as to insider dealing which is also applicable at least to the exercise of stock options.

If we look at Prospectuses, there is disclosure as to remuneration but strangely enough the two countries which were the best with regard to disclosure until now only give aggregate data on directors’ remuneration in Prospectuses. This is not easy to explain except that the European Directive on Prospectuses only requires aggregate remuneration. Individual remuneration is given in France, Italy and Sweden.

In the second group of countries, only total disclosure of remuneration is made in Prospectuses and only in some countries is information given as to stock options.
Looking at governance issues, this slide shows the Competent Body for executive remuneration, whether a Remuneration Committee is foreseen or not, what is the composition of that Committee, and what are its tasks. The situation in the UK is probably familiar to all of you. The Remuneration Committee is foreseen by the Combined Code, the Committee must be composed of independent directors, and the tasks of the Committee are well known. The situation is the same in Ireland.

If we look at France, where a Remuneration Committee is foreseen by the corporate governance reports and it is recommended, it is made up of a majority of independent directors . The reason here is to be found in the concentrated ownership structures of listed companies in countries like France and Italy. Also in Italy, a Remuneration Committee is foreseen under the Italian exchange corporate governance code. However the only requirement regarding the composition of the Remuneration Committee is that it should consist of a majority of non-executives. This would in theory allow executives to be part of the Committee. I feel that this rule should be changed and at least the French approach should be followed in this country. In Spain also, the composition of the Remuneration Committee should merely reflect the composition of the Board of Directors.

If we look at the other group of countries, in only a few of them is a Remuneration Committee foreseen – in countries which have a two-tier board like Austria and Germany even though in Austria for instance the Committee could also have more general tasks. We should also consider that the notion of independent director is rather different in countries which accept a two-tier system.

As to the role of shareholders, the only two countries which assign a specific role to shareholders as to remuneration policy at least are the UK and Ireland. In the other countries, shareholders are mainly involved for the approval of stock option plans particularly when they imply the issue of new shares.

Here I try to give grades from 1 to 5 to the different countries. There is quite a lot of discretion as always when assigning grades. First there are the UK and Ireland, just ahead of France, Italy, Sweden and the Netherlands.

In the second group, Austria and Germany lead the pack but some countries have very low scores. These countries should really try to improve their regulation with regard to executive remuneration.

If we look at CEO remuneration, based on a summary of statistical data which has been collected from the FTSE Europtop 300 companies, the total pay has been calculated for executives but this data does not include stock options which would be too complex to calculate. France shows the highest total pay (These statistics of course can only be derived in those countries that publish such information).

It is interesting to look at the percentage of base salary with respect to total pay as well as the percentage of bonuses with respect to total pay. The data is not uniform in this respect. You can see that not all the countries make individual disclosure of CEO pay composition.

Whilst it is not possible to calculate the value of stock options, we can at least look at percentages – for instance the outstanding management stock options versus total outstanding stock options (meaning employees’ stock options) you will see that in the UK, management has got about 10% of total outstanding. In France, this figure is 19. In Italy, this is not published. In the Netherlands it is about 10 percent, in Germany about 17 percent.

What is also interesting is the ratio of outstanding CEO stock options and outstanding management options. The figure here is almost 50% in the UK , 38% in France and the Netherlands and 32% in Sweden.

Finally, one piece of data that is particularly interesting is the number of companies that have adopted stock option plans. In the UK, all companies (of which there are 53) have adopted stock option plans. They have also adopted Long Term Incentive Schemes which makes them different from the rest of Europe. In France the figure is 34 companies out of 36 which shows that even in continental Europe the adoption of stock option plans is on the rise. In Italy, it is 23 out of 30. In the Netherlands and Sweden it is 13 out of 14 and in Germany, 15 out of 24.

Sir Geoffrey Owen, Senior Fellow at the LSE, then took the chair as moderator for a panel discussion. He invited the panelists to say a few words before throwing the discussion open to the floor.

Professor Paul Davies, Cassel Professor of Commercial Law at the LSE said that as a lawyer, the problem is a very simple one. “It was recognised as a very simple problem 200 years ago by common law. It is a problem of self-dealing - of directors being on both sides of the bargaining table when their remuneration is set.”
“It is not an answer to that problem to say that there is strong competition in the external labour market amongst companies for executive talent,” he continued. “If there is some systematic defect in the way remuneration is set internally in companies globally then external competition doesn’t deal with it. It’s a bit like saying ‘we needn’t worry about there being a monopoly in the production of a particular good provided there is strong competition amongst the retailers at the distribution level’.”

The problem is simple to conceptualise. That is not to say that the solution to the problem is at all easy. The great virtue of Professor Ferrarini’s paper is that he brought out very clearly what seem to be the four available legal strategies for dealing with this problem. We don’t have to plump for one of them – indeed any jurisdiction is likely to plump for some mixture of them but it’s pretty clear what they are.

One strategy is disclosure. You require more and more disclosure in more and more detail and in greater depth and certainly on the basis of individual directors and not the board as a whole. This is a sort of ‘naming and shaming’ strategy. The main question is ‘is naming and shaming a sufficient counter incentive to the high powered self-interest which can be displayed in the remuneration setting?’

A second legal strategy is to say ‘this isn’t a problem of director remuneration, it is a problem of executive director remuneration so let’s shift the decision-making about executive director remuneration into the hands of the non-executives’. In other words, let’s structure decision-making on the board in a particular way and that leads you to go down the road of independent directors, remuneration committees etc which we know well about. The main question is to what extent can one rely on the independence of the non-executive directors?

The third legal strategy is to do what common law did 200 years ago – which is to say if the board is in a conflicted position, then it should be disabled in taking the decision about which the conflict exists. Some other body has to take the decision other than the board. Let’s move the decision to the most obvious alternative body, namely the shareholders. The disadvantage of this is that is slows down enormously the process of contracting over executive pay and possibly shifts the decision into the hands of people who are less expert than the board. That is why companies in their constitutions uniformly wrote out the common law rule by restoring to the board the power to take decisions on executive remuneration. There are ways, and this is the thrust of the 2002 reforms in the UK, in which one can re-involve shareholders in decision-making on executive remuneration whilst avoiding the disadvantages of slowness and inexpertise which might arise. The proposed way of squaring the circle in the 2002 reforms in the UK is to require an advisory vote from the shareholders on the board’s remuneration policies so that no executive director’s contract is negated as a result of an adverse vote by the shareholders. But an adverse vote by shareholders certainly has a significant effect on future contract setting by the company and probably leads to voluntary renegotiation of existing contracts.

The fourth strategy is to impose mandatory limits on the sort of contracts that a company and its directors can enter into. That is obviously the toughest form of legal intervention, a form of intervention that is most likely to produce unexpected results. There is some evidence of the use of this technique, not so much in legislation but in ‘soft’ law, in combined codes and those sort of things. Here one finds limitations on things like notice periods which is a way of controlling payoffs at the termination stage. The British government is currently consulting on the question of whether such limitations should be embodied in the companies legislation.

He concluded “those are the four strategies which have been very clearly explained to us. I don’t think any one of them by itself is going to be effective. There’s some sort of combination of them all that we need and I think the interesting question is what should that combination be.”

Professor Joachim Schwalbach, Professor of International Management at Humbolt University, Berlin felt that the acid test for corporate governance will be executive pay. “Looking at various empirical studies, the biggest problem with executive pay is that pay-for-performance is hard to find. You don’t find it in the US. You don’t find it in any other country,” he said.

If one looks at the median compensation in the US for the largest 100 firms last year, there is an increase of 14 percent on the median level. At the same time, shareholder returns dropped by 22 percent. You also see huge severance pay packages paid to failed executives. This indicates that it is very difficult to find pay-for-performance links.

What are the reasons for this? One reason is that executives are able to influence their own pay arrangements. There is evidence for this in many countries, in Europe also of course.

The second reason is that although ultimate pay decisions are made by the board, based on recommendations made by compensation committees, initial recommendations are made by company management advised by compensation consultants. These compensation consultants are part of the problem.

If compensation committee members are themselves executives in other firms, executive pay is positively related to their own pay. Many studies indicate this quite clearly. Furthermore many studies show that executive pay is higher if committees are comprised of insiders.

What are the solutions to improve the situation?

The first solution is that any attempt to reduce compensation or bring it into line with performance has led, at least if you look at US performance, to the perverse result of increases in pay. So if you take only two data points in 1992, the better disclosure of pay in the US led to higher pay. Because people saw how much everyone gets, they then tried to get even more themselves. The same argument applies in European countries.

In 1993, again in the US, Congress declared salaries over $1million to be tax-exempted. What was the outcome? Companies opted for huge stock option grants. What is the solution? Regulation is the spur to innovation!

The argument that pay has to be high to attract talented executives is flawed. The hypothesis that there is a shortage of talented CEO’s is simply a myth. Pay has less to do with the market’s invisible hand than with invisible handshakes. There are many examples of this in the newspapers every day.

If you look at Europe, European companies usually pay their executives a small fraction of their US counterparts make. Yet they don’t seem to have any problem recruiting and retaining talents. The shortage of talent is thus a myth.

The third solution is that as long as executives have the freedom to behave as if they owned the place, and the real owners are behaving as if they didn’t, nothing will, change.

“What conclusions can we draw from this?” he asked. “Executive pay has to put to shareholders’ vote. How do you do that? Disclosure of executive pay is essential. We have seen some progress on this in Europe but countries are different. In the case of Germany, we see some disclosure but not in the same way.”

“Pay structure has to be made transparent and simple to allow shareholders to understand pay-for-performance links. The pay structure we see now, especially in relation to stock option plans, is too complicated not only for shareholders to understand. I get the impression that even executives don’t understand their own stock option plans! Any pay-for-performance analysis has to part of the business report otherwise we won’t see change. In the UK, most companies already do this.”

Opening the debate to the floor, Sir Geoffrey Owen said that there were a number of issues on which he would welcome views. ‘What is the best way of incentivising senior executives to promote shareholder value?’ Is it really the case that stock options, which were widely praised when they were first introduced as a way of aligning executives with shareholders, have failed? Should they be abandoned, and if they were, would that be throwing out the baby with the bath water. Or is it a question of modifying the schemes in some way?

Colin Melvin said that as far as disclosure was concerned, he would agree that this isn’t a solution to quantum. The experience in the UK was that the 1995 the Greenbury Report which recommended additional disclosure resulted in a massive increase in pay because everyone wanted to be top quartile. Of course they can’t all be. And there was a spiral upwards of pay levels. Disclosure is potentially a solution to performancing if we have the censure of shareholder vote.

On non-executive directors deciding pay, he agreed this was a good idea but as these people are on each others boards, there is, as Professor Schwalbach so graphically put it, a lot of invisible handshaking going on.

The consequences of an advisory vote like the one we have in the UK at the moment, are as yet uncertain. He said he was told that before the GlaxoSmithKline vote, one possible consequence might have been the entire board resigning if they had lost the vote on pay. “Now clearly that hadn’t happened in Glaxo’s case,” he said “but still it’s not entirely clear what a company is meant to do if it loses the vote. Glaxo, as it happens, has started an extensive series of consultations, the first meetings of which happened this week.”

On limitation on the length of notice periods, he said that the effect of that in the UK, a reduction to one year, has not really led to a reduction in the amount paid to directors. They seem to have managed to keep that pretty high by including bonuses and pension enhancements and such like so we have to be careful about placing too much emphasis on the structure and not so much on the consequences.

Lastly, on simplicity and transparency, he felt this was very important. Schemes should be simple and transparent. People being incentivised by these schemes need to understand what they need to do to get their hands on the incentives. “Recently in the UK,” he told the audience, “Kingfisher took a very bold step and decided not to employ a consultant to produce its new pay scheme but to think it up themselves. The Remuneration Committee got together and decided what they wanted to do which was a very basic annual bonus which produced an amount of shares which had to be held thereafter. Their approach which was simple and it seems it would work. We supported it on that basis. It’s a very good development.”

Professor Guido Ferrarini said he entirely shared Paul Davies’ view that this is after all a very simple problem. “I would like to emphasise that an element of complexity would be added if we take into account the fact that ownership structures differ in Europe,” he added. The discussion which is often conducted concerns mainly diffuse ownership companies. One should think of the same problems in respect of concentrated ownership companies. “If we ask what the combination of the four strategies that Paul Davies mentioned should be, taking into account ownership structure, then the solutions could also differ and the roles of the board and the shareholders meeting could be different. For the rest I entirely share the view that remuneration should be more transparent and simple.”

From the floor, Marco da Rin, an academic and a Research Associate of the ECGI, said that from the panel discussion, he was struck by the absence of reference to the role of stock exchanges. Professors Ferrarini and Davies made the very good point that the way to deal with corporate governance issues is in large part due legal regulations which are taken at the national or European level. However the instrument of disclosure is also very important as we have seen in the tables and in the data. And here, stock exchanges certainly have some leeway. They can do a lot. “My questions are ‘what is the contribution of stock exchanges in this respect and how does competition amongst stock exchanges affect their ability to influence corporate governance through disclosure?”

Paul Davies said one needs to distinguish the question of developing special rules for listed companies and the question of whether the development of those rules should be in the hands of stock exchanges.

From the floor, Kurt Ramin, Commercial Director at the IASB, said that there would appear to be consensus that disclosure and transparency are very important. “Professor Schwalbach made the cynical remark that sometimes even the executive often doesn’t know what his stock options are worth so expensing it would be quite a difficult task to,” he opined.

“Disclosure by sector is very important too,” he continued. “We have all kinds of indices by sector – automotive, airlines etc and if one focused on that it would give additional transparency.”

Colin Melvin answered the last point by saying that it would seem that certain types of company within certain sectors might require different remuneration structures. At the moment, structures are broadly similar across the market but clearly in some types of company and endeavour, greater entrepreneurship is required and that should be encouraged. In others, the director is more of a manager and it would seem that different pay structures would be appropriate for different situations. “We are still some way as shareholders from finding a solution to these problems but these are types of thing we are considering at the moment,” he concluded.

From the floor, Gregor Pozniak, Deputy Secretary General of FESE, said that there are different approaches disclosure requirements in Europe, it. It can be done on a European level through a Directive. It can be done on the basis of regulatory competition on the national level. It can be done in the form of competition in private law admission rules to trading by individual exchanges.

“From a purely European standpoint,” he said “certainly competition of market segments, competition of exchanges through disclosure levels in the admission rules is an option, but as in other areas of disclosure, be it quarterly or half yearly reports, be it executive remuneration, there is not only the European aspect to it, there is also a global aspect to it.”

If privately run and competing exchanges subscribe to an overall goal of making the European time zone competitive with others, aspects of global expectations, global competition etc must be drawn into the discussion. There can be liberty for all as well as market competition and all functioning competition between markets and market segments. If this opens the door towards driving the divide between European countries and European exchanges, this may play into the hands of other time zone’s regulators which will continue to look down on Europe

Colin Melvin said that there was an interesting issue about competition amongst exchanges and the exacting nature of corporate governance requirements. There had been a fear amongst those involved in this area that onerous governance requirements might drive companies towards exchanges with less exacting requirements in terms of disclosure. He felt the nature of competition is the other way around. “Companies can attract a lower cost of capital by migrating towards markets with greater regulation and transparency,” he concluded.

Sir Geoffrey Owen thanked the speakers and the members of the panel for their contributions and the audience for their questions and drew the proceedings to a close.