EU Corporate Governance: A New Supervisory Mechanism for the ʻComply or Explainʼ Principle?

Abstract

The global financial crisis has shown the necessity to adopt a more ‘intrusive’ and proactive regulatory model in the area of corporate governance. One frequently-suggested way to achieve this would be to enforce disclosure obligations on companies in order to more efficiently monitor the adopted corporate governance practices. Public bodies and governments need to secure the confidence of all actors in the financial markets by creating and maintaining a credible regulatory framework that encourages companies to be more transparent in their corporate governance practices. Nevertheless, the ‘comply or explain’ principle upon which the European framework has embarked seems to present, in its current dimension, a series of problems regarding its effectiveness. The ongoing academic debate has been drawn to the idea that a shift to hard law would resolve the problems that have arisen in previous years. Nevertheless, this paper will explain the reasons for which this scenario is not currently realistic and will focus on maintaining soft law measures while proposing a new supervisory mechanism of the information disclosed. More specifically, the role of institutional investors, auditors and national regulators will be analysed, and a new ‘multi-layered’ supervisory mechanism will be developed.