FERMA will express concern to the European Commission that it is trying to develop more regulations on corporate governance and risk management too quickly. Instead, FERMA believes the Commission should examine existing laws to make sure they are appropriate, and then enforce them, rather than rush to create new legislation.

There should be more emphasis on implementation of the 8th Company Law Directive, which is in effect, and appropriate harmonisation of existing national corporate governance frameworks, FERMA board member Michel Dennery has indicated will be one of FERMA’s comments.

He and former FERMA Chairman and board member Marie-Gemma Dequae are leading the preparation of FERMA’s response to the Commission’s green paper on corporate governance published in April. The reply is in its final stages for submission later in July, but a flavour of FERMA’s views emerged at a roundtable held on the eve of the general assembly in June.

Speaking at the roundtable, Dennery pointed out that work to implement the 8th Directive, which deals with internal control, was not yet finished. “We are keen to see the Commission leave time to do that first before moving on to the next stage of regulation,” he stated.

Marc Hertgen, Policy Officer, Corporate Governance and Social Responsibility Unit DG Internal Market, explained that the Commission wanted to start a longer term, cross-sector discussion on the evolution of corporate governance once the immediate emergency of the banking crisis was past.

The role of directors in managing risk is a key aspect of the green paper. “For us,” said Hertgen, “risk management involves a flow of enough information for an effective challenge to executive management from the board or shareholders.”

When it comes to the disclosure proposals in the green paper, Dennery explained that risk management in financial institutions is very different from risk management in industrial and services companies.

All sectors must disclose close their financial risks, and there should be no question of risk taking with safety, security and technical processes, he said.

“Disclosing strategic risks, however, is very similar to revealing strategy. Companies have for a long time made a lot of effort to communicate their strategy clearly to stakeholders and shareholders to get financial support for their development. The share price of a company is directly linked to the trust in its strategy.”

Dennery’s comments at the roundtable indicated that FERMA’s response to the green paper evolve from its work with the European Confederation of Institutes of Internal Auditing (ECIIA) on the risk management provisions of the 8th Directive.

FERMA has consistently stated that the board of directors has to approve and take responsibility for the company’s risk appetite. Directors must make decisions on strategic opportunities and ensure that systems to manage downside risks within acceptable limits are effective.

In terms of future corporate governance requirements for smaller businesses and unlisted companies, FERMA follows its thinking on Solvency II: that although the principles of the regulation apply to all enterprises, their application should be proportionate to the size and risk profile of the business.

The EU consultation paper is available at:
The joint FERMA-ECIIA Guidance on the 8th Directive is available at: