Corporate Governance Codes and Groups of Companies: In Search of Best Practices for Group Governance

Abstract

Many listed companies are part of a group of companies and therefore they are facing the special challenges of effecting group governance. Group governance will involve balancing the interests of the group against the interests of the individual companies in the group. Finding the right balance between these two is not always easy, which is confirmed by the fact that the Commission has announced its intention to facilitate the recognition of the concept of ‘group interest’ in EU company law. We have analysed a number of corporate governance codes to see how they address the issue of group governance. We initially examined 48 codes, but selected 16 codes for detailed analysis. In the codes analysed we have found some recommendations for how groups of companies should be governed, but they are often found in different codes, often apply to a broader category of situations, not specifically group situations, and in some cases point in different directions. Therefore, it seems fair to say that the current recommendations for group governance are fragmented and superficial. Since we have analysed those codes that, based on our initial survey of 42 codes, were most likely to contain recommendations on these issues, the recommendations on group governance in other codes are even more likely to be fragmented or non-existent. Therefore, there seems to be a need for more clarity on group governance, and the Commission’s intention to address the issue of group interest should be welcomed. However, since there is little consensus on what constitutes good group governance, considering the often opposing strategies underlying the analysed codes’ recommendations, the Commission also has a difficult task if it decides to take steps to operationalise the recognition of group interests.