Challenges and Opportunities in European Corporate Governance Standards

European issuers face an emerging equity gap as highlighted in various reports, indicating a decline in equity share in global markets. Legislative and industry developments aim to address this gap and improve access to funding for businesses. Kay Review of UK Equity Markets sheds light on the changing nature of equity issuance, emphasizing the need for regulatory environments that support growth and capital raising.

• European governance
• Equity market
• Legislative developments
• Business funding

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1. Corporate Governance Standards in the European Union Susannah Haan Secretary General

2. About EuropeanIssuers EU trade association - we aim: To represent to EU policymakers the common interests of EU quoted companies as users of financial markets To ensure that the EU creates a regulatory environment in which these companies can raise market capital and deliver growth 2

3. What will speak about Emerging equity gap & changes global economy Kay Report UK equity markets and implications EU corporate governance - definition, content, other relevant areas Legislative & industry developments What are we trying to achieve? 3

4. The emerging equity gap McKinsey Report - Growth and Stability in the new investor landscape Share of equity in global financial markets could fall from 28% to 22% by 2020 Costs of equity will rise while banks have rising needs for equity (and implicit guarantees) Ageing in Europe means increased need for savings and investments but dislike of risk Governments likely to push risk of savings onto companies and individual savers 4

5. The emerging equity gap OECD reports: The world is producing only one third of the IPOs as 20 years ago (over 2000 in early 1990s to less than 750 in 2012) US markets have experienced 15 years of consecutive listing losses EU IPOs are also badly hit. Over 2008-2012, only 6 out of the top 26 IPO markets were in the EU Asian markets produced 7 times as many IPOs in the same period 5

6. Kay Review of UK Equity Markets "Equity markets today should primarily be seen as a means of getting money out of companies rather than putting it in" New equity issuance has been negative over the last decade and obtaining a listing is no longer a natural step in the development of a new business smaller, mostly newer businesses have found it particularly d fficult to access funding since the financial crisis - public offerings are rarely the exit route of choice for investors (6% IPOs v 50% trade sales) 6

7. Kay Review of UK Equity Markets Costs of equity are high by historical standards and in absolute terms Regulators tend to measure the wrong things e.g. the breakdown of costs of trading an individual share but not the costs of buying and holding the same share Length and complexity of the chain means more complexity and less understanding Active ownership is discouraged by current market structures 7

8. Relevant implications Securities markets are expensive They do not work well for smaller companies on whom Europe depends for growth and jobs Some standardisation of documentation may help reduce costs, if done well Beware standardisation at highest common denominator as benefits tend to flow to largest companies EU small-cap funds on market invest in companies under c. 3bn 8

9. Corporate Governance EU System by which companies are directed and controlled Role and responsibilities of board and management Rights and responsibilities of shareholders Interests of other stakeholders Ethics Disclosure / transparency 9

10. EU corporate governance Company Law & Corporate Governance Action Plan mid 2000s Shareholder rights directive implemented 2009 Financial crisis 2009 Green Paper corporate governance of banks and other financial institutions Green Paper non-financial companies Action Plan December 2012 10

11. EU Action Plan 2012 Revision shareholder rights directive Related party transactions, acting in concert Comply or explain recommendation Proxy advisers code of conduct Boardroom diversity Non-financial information Company law codification 11

12. Not directly in Action Plan Securities law treated separately from company law and shareholder rights Securities law legislation Industry General Meeting and Corporate Actions standards Shareholder identification Green Paper long-term financing of EU economy 12

13. Cross-border voting Long chain of intermediaries Company law, securities law, industry standards Clarify different expectations for who does what by when: Issuers CSDs & exchanges Custodian & sub-custodian banks Investors Standardised information along the investment chain 13

14. Enable communication Implement shareholder rights Help issuer needs Ensure information about meeting sent down chain Ensure entitlement communicated along chain Notification of attendance and votes sent back up chain Shareholders know whether and how votes are cast on their behalf Dialogue between companies and investors - key goal of EU corporate governance 14

15. Need for clearer overview Policymakers too buried in details - lack strategic overview how all fits together and what we want markets to do Clear strategy / direction, not shopping list e.g. Europe needs to move from being economy 70% based on bank finance to 50% bank / 50% market finance by 2020 / 2025 15

16. What we need Then need provide environment for debt and equity finance to flourish: costs target eg listing costs 15% too high standardised documentation, different market segments with different standards of corporate governance for newly listed companies, etc additional rules on securities law 16

17. What lessons can others learn Look at problems trying to fix as to whether applicable to other markets - don't just copy blindly Look at whether implementation effective, not just legislation on paper Don't try to harmonise corporate governance rules for boards Think about financial markets as means of communication and whether securities law can help by clarifying responsibilities cross-border 17

18. Further information www.europeanissuers.eu EU industry standards http://www.ebf- fbe.eu/index.php?page=market_standards 18