In lieu of an abstract, here is a brief excerpt of the content:

– 125 – Transcripts of Corporate Governance Session Paper: Hilde Laga and Floris Parrein Respondent: Eddy Wymeersch (University of Ghent) Chair: Paul Davies (University of Oxford) Rapporteur: Sofie Cools (K.U.Leuven) A. Abstract Independent Directors – The problem with independent directors is twofold. First, they are often ill-informed and not knowledgeable about the business of the company. Second, even if they are informed, it requires a great deal of courage to stand up against the executives and challenge their proposals, especially if the executives are very powerful. Yet failure of a company is not always and exclusively the fault of the independent directors, or even the entire board. One cannot evaluate the role of independent directors without considering the responsibility of other corporate constituencies, such as the shareholders’ meeting. Consideration should be given to introducing internal inquirers or ad hoc committees to investigate issues, rather than paying too much attention to the role of independent directors. Limits of Corporate Law – There are limits to the possibilities of corporate law: the performance of a company depends to a large extent on the individual behaviour of the directors and managers. However, this should not be an argument for abstaining from any legal intervention designed to promote good decision-making. Soft Law – The value of soft law is that it allows a judge to apply general principles in concrete situations. In other words, it can make the (hard) law better enforceable, without unduly burdening efficient governance. For that reason, many issues should not be taken up in hard law. They could be addressed in best practice guidelines. In that respect, it was also argued that the European legislator should set out some high level principles for national corporate governance codes. Director Liability – It was proposed to distinguish between executive and non-executive directors. There are arguments for the position that a nonexecutive director, who must remain an outsider and thus does not spend as much time becoming informed, should be evaluated according to less stringent standards. Empty Voting – Empty voting should be avoided, but this is not easy to regulate. This is partly due to the difficulty in determining what is covered by – 126 – the term “empty voting”. Obviously, the general meaning is voting of shares by people who have no economic interest in the shares. However, there are several rules, such as record date mechanisms, which were introduced for good reasons, but which can be abused as a means to engage in empty voting. B. Response to paper by Eddy Wymeersch My first reaction is that we should also look at these issues from the perspective of the financial crisis. The financial crisis reveals significant shortcomings in the governance of those institutions that have suffered the most. Claiming the existence of corporate governance shortcomings afterwards is always rather easy, because the company has gone down, the board has been removed, the CEO has almost been killed, etc. I propose to deal first with financial stability, i.e. the link between corporate governance and financial stability. Although this has not yet been sufficiently explored, it must be emphasised that the international institutions, such as the IMF, FSF and others, are showing increasing interest in corporate governance issues. They are right. The second item I will deal with is the exercise of crossborder voting rights, and the third one is empty voting. The first point is financial stability. In my view, it is obvious that in all the big failures which we have seen and that created systemic risks, governance shortcomings of all kinds have been of paramount importance. I can recommend a few books written by journalists. There is one book on Northern Rock and two books, written by Jeroen Smit, on Ahold and ABN Amro respectively. They are not highly technical accounts, but they are very informative as to the governance process. What we see in all of these descriptions – and I am sure there are many others – is that boards have been utterly ineffective. Nonexistent monitoring, no guidance: it is really very disappointing. In the case of Northern Rock, the board was constituted of members originating from two predecessor entities, one being a corporate entity and the other one a building society owned by the local gentry. There was a clash between two totally different cultures: on the one hand the corporate world of the small savers and on the other hand the traditional and rich gentry. They were unable to talk to each other, but moreover, they did not meet (or...

Share