The European Commission has this week launched a consultation, in the form of a green paper, in preparation for taking measures to enhance corporate governance in financial institutions and remuneration policies.

It is significant that the Commission is keen to avoid killing the spirit of what it is trying to achieve by smothering it with compliance, putting emphasis on supervision rather than regulation. Any measures decided upon as a result of the consultation will also be subject to impact analyses, as the Commission is keen "to preserve the competitiveness of the European financial industry".

The consultation is the first step towards identifying suitable measures to enhance corporate governance, so as to address the identified governance shortcomings that contributed to the financial crisis.

The issues under consideration for potential measures include board effectiveness, enhanced risk management functions, enhancing the role of external auditors and supervisory authorities, enriching the motivation for shareholder engagement, better accountability for board implementation of corporate governance principles remnuneration and the management of conflicts of interest.

The specific questions asked in the consultation will be familiar to those who have followed the debate about corporate governance in financial institutions, not least those familiar with the Walker review. They include (inter alia) the balance of skills, independence and time committment on the part of directors, risk committees and risk control declarations, codes of practice for institutional investors, and enhancing shareholder identification.

The Commission is also returning to the issue of remuneration. The paper notes the poor take-up of previous various regulatory initiatives in remuneration, and there is a strong tone of 'what approach should we take' about the remuneration section, more than just 'what issues should we address?'.

The consultation wil be open for the summer recess, closing on the 1st September.

http://ec.europa.eu/internal_market/consultations/2010/governance_en.htm