European corporate governance has evolved to allow companies to conduct business in multiple countries without excessive costs. EU company law mandates boards of directors to oversee annual reports and accounts, while audit committees monitor risk management and internal controls. Shareholder rights are protected, and ethical decision-making is encouraged through codes of conduct.
Corporate governance is the policy and methodology by which a company or a company is directed, controlled and moved towards growth and profits. Since the inception of the European Union (EU), EU countries have moved closer to their collective goals of creating a better environment for businesses to start, expand and reach their markets without the inequalities of national borders. The common or general characteristics of European corporate governance have changed somewhat as shareholders, employees and stakeholders in companies have adapted to changes in laws and regulations. It is now possible for a company created in one European country to conduct its business in other European countries without separate management and registration costs for each additional country where branches or subsidiaries have offices and business operations.
Some of the dominant elements in European corporate governance are structured by EU company law. The boards of directors are responsible for the annual reports and accounts vis-à-vis the company in all EU member states. Audit committees oversee these reports and monitor the effectiveness of risk management systems, internal controls and the independence of all consolidated audits. European corporate governance safeguards shareholder rights, including mandatory notices of all general meetings, the lifting of bans on electronic attendance at general meetings, shareholder voting by post and shareholder questions which may be allowed at any general meeting. European companies can be incorporated in one country and proceed to merge, form holding companies and subsidiaries, without legal constraints of 27 different countries causing exorbitant legal fees and administrative costs.
The Organization for Economic Co-operation and Developments (OECD) in the late 1990s published a document on corporate governance principles that most European countries referred to or switched to company law for their communities entrepreneurial. The underlying principles of this document included that effective corporate governance frameworks should foster transparent markets, have consistency in the rule of law, and outline clear accountability among all supervisory, regulatory and enforcement authorities. Furthermore, all shareholder rights and key property rights should be protected by governance frameworks and there should be an expressed equality to all shareholders, including minority or foreign shareholders, among other provisions.
The European Corporate Governance Principles are adopted in most countries, including recognitions that ethical decision-making is not only good for public relations, but is good risk management practice and reduces lawsuits and damages. Codes of conduct are developed for best governance practice by directors and all management staff and compliance provisions are strictly enforced. The boards of directors are responsible for year-end reports in clear and understandable language of the company’s positions and also future prospects.
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